Applied Digital turned its first HPC campus into paying business — and the stock dropped 12.7% the same day.
Shares closed at $23.22 on July 29 after a string of filings that finally showed rental revenue from Polaris Forge 1. The company’s latest annual revenue is $144.2M, up 5.5% year over year, and management flagged that hosting work is generating rental revenue. EV/sales is 32.1x and market cap is $4.7B.
Management’s description of where the revenue came from was blunt.
> "The change is primarily due to revenue generated related to tenant fit-out services, net of expenses, as well as rental revenues from our first HPC data center at our Polaris Forge 1 campus as it became fully operational during the fiscal year ended May 31, 2026." (Applied Digital Corporation / 10-K / 2026-07-29)
Plain read: Polaris Forge 1 moved from construction to operations, and that shift shows up in the 2026 numbers.
The numbers show a business moving from prototype to operation, with modest year-over-year revenue growth. Revenue is $144.2M; the year-over-year change is a modest +5.5%. At the same time, operating margin improved by 12.4 percentage points in the latest annual period — a sign that the mix is shifting toward hosting and rental fees rather than only project revenue.
That improvement has a cost side, and management calls it out explicitly.
> "The increase was primarily driven by an increase of $69.5 million in expenses associated with tenant fit-out services for our HPC Hosting Business, an increase of $3.2 million in energy costs associated with our Data Center Hosting Business, and an increase of $5.2 million in other expenses directly attributable to generating revenue." (Applied Digital Corporation / 10-Q / 2026-01-08)
Takeaway: the same tenant fit-outs that make revenue recurring also produce big up-front expenses. Those dollars hit margins until customers occupy the racks.
Credit moves add the other side of the equation.
> "These increases were partially offset by a decrease of $450.0 million in borrowings under our Convertible Notes which occurred during the nine months ended February 28, 2025 as well as an increase of $142.0 million in repayments of long-term debt during the nine months ended February 28, 2026 compared to the nine months ended February 28, 2025." (Applied Digital Corporation / 10-Q / 2026-04-08)
Read: the company has been chipping away at convertible exposure and repaying long-term debt, but those moves reshape liquidity and interest dynamics while the business scales.
That combination — proof that data-center operations can produce rental revenue, plus meaningful buildout costs and active debt reshaping — is the central tension. It explains why scenario math varies substantially: the company’s own scenarios assume revenue CAGRs ranging from 12% to 40% and exit P/S multiples from 14.5x to 32.4x. The gap between the bull and bear cases is wide, driven mainly by which multiple the market assigns once growth and margins settle.
Short version: Applied Digital has become a hosting operator, but turning that operational proof into the sort of revenue growth and multiples investors have already priced requires the company to keep converting fit-outs into recurring contracts — and to do so while managing the cash and debt implications.
*Numbers and quotes from Applied Digital Corporation filings (10-K 2026-07-29; 10-Qs 2026-01-08, 2026-04-08).*